Energy Intensive Industries Scheme Proposed Price Changes

On 22 June, the government announced that it was consulting on widening the eligibility criteria for energy intensive industries scheme (EIIs) to be made exempt from the indirect costs of renewable support schemes.

These include the Renewable Obligation (RO), the Feed-in Tariff (FiT) and Contracts for Difference (CfD) schemes.

BEIS called for evidence of current intra-sectoral competitive distortions as a result of the current costs some EIIs face from these support schemes as a result of the current exemption level of 20% electricity intensity.

Dependent on this evidence, the consultation is also seeking views on lowering the intensity threshold to 17%, 15% or 10%.

Lower The Energy Intensive Industries Scheme Threshold

It was noted that while lowering the threshold would exempt more Energy Intensive Industries Scheme from in direct renewable policy costs, it would also increase electricity costs for non-eligible consumers.

To address this, BEIS proposed three options to reduce aid intensity (the amount of exemption that a company receives) for EIIs with lower levels of electricity intensity to: 50% for businesses with electricity intensity at or above 17% and below 20%; 50% for businesses with electricity intensity at or above 15% and below 20%; or 35% for businesses with electricity intensity at or above 10% and below 15%. Under all of these scenarios the aid intensity would remain at 85% for businesses with electricity intensity at or above 20%.

Spreading the costs

In one option (see table) BEIS expects any newly exempt EIIs to see their electricity costs fall by up to 50% of the RO, FiT and CfD policy costs. This would result in electricity bills falling by an estimated average of £1.6mn per business. However, non-eligible consumers will see their bills increase to make up the difference. Small business customers are expected to see an increase of £100/ year, while medium businesses will see an average increase of £3,000/ year. Ineligible businesses operating in an energy intensive industry will see their bills increase by an estimated £50,000/ year.

BEIS also explained that under EU state aid laws the value of any over-exemption of EIIs needs to be recovered. It had previously consulted on potential options to redistribute any over-recovered revenues back to customers, but none of the proposals could guarantee that any over-exemption would be fully recovered. The government is therefore also consulting on an alternative proposal to recover the value of any over-exemption, without redistributing it back to customers.

While it is encouraging that the government is looking to make EIIs more cost competitive, this approach would transfer the issue to smaller businesses rather than eliminating it entirely.